Did You Buy Something Big in 2010? Sales Tax Deduction Possible

Tax Tip: Sales Tax Deduction is Back on Schedule A

Did you buy something big in 2010? In 2010, your CPA probably told you the sales tax deduction went away on December 31, 2009. But, the tax act passed at the end of 2010 brought it back. If you bought a car, boat, RV, airplane, sound system for the man-cave, or took extra advantage of the holiday sales, save up the receipts and ask your accountant about getting an extra deduction.

Or, use the IRS’ Sales Tax Deduction Calculator at: http://www.irs.gov/individuals/article/0,,id=152421,00.html.

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My Curbside Garbage Economic Indicator

After my recent trip to India, where garbage is omnipresent (see my travel blog at hollysholidays.wordpress.com if bicycling through developing countries with no physical preparation is of interest to you), I’ve been making comparisons about “here” and “there.”  Although India has three times as many people, and very few landfills that I could tell, I would wager we have a LOT more garbage.

Today is garbage pickup day in my neighborhood.  This morning on my walk, I was amazed at how many people’s garbage overflowed the giant bins the city provides for regular garbage, and how many had two or three full-to-overflowing recycle bins on top of that.  (By the way, are orange juice cartons and cat food cans really recyclable?)

I suppose if I wanted to be a true economic scientist about it, I would have picked through the garbage to analyze it.  But I refused. (Maybe that’s why I don’t have a Ph.D. )  Nevertheless, I couldn’t help but notice large quantities of cardboard boxes.  You know, the kind that you get when you shop online?  Maybe it’s Christmas boxes, or maybe it’s after-Christmas-sale boxes, but, regardless, the impression I kept getting was, “What in the world are all these people buying in these boxes??”  As I was wondering that, a UPS truck passed me on the dead quiet street.  To deliver more cardboard boxes.  Which will end up in the garbage.

Our curbside pickup in the city comes twice a week.  Most weeks, my husband and I don’t use the recycle bin and we barely have one bag of garbage.   I’m guessing that’s because we don’t buy very much.  Ironic, isn’t it?  When we buy more, we throw away more.

I’m torn. As an economist, I should be happy about overflowing garbage bins.  We need the consumer-driven economic activity. But, as a personal financial professional, I have to ask, do we need all the stuff in the boxes?  Where are we putting all the stuff?  What do our closets look like compared to an Indian’s?    Is all this stuff making us any happier and producing a more fulfilling life than a newly-middle-class Indian who just got their first cellphone, a member of the first generation in centuries that doesn’t go to bed hungry on a regular basis?

I didn’t see very many cardboard boxes in India.  Mostly I saw candy wrappers and newspapers left on the side of the road for the goats.  That’s what I call India’s recycling program.

Hmm, I wonder.  Do goats eat cardboard boxes?

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Picking the Right Horse

Every year, financial magazines and newspapers come out with a “Best Mutual Funds” issue. They pick which ones have the best 1, 5, and 10 year track records. They print flattering reports on the fund managers and their philosophies. For once, then, I was surprised to see Fortune magazine, in December 2009, went back and analyzed what percentage of actively managed funds actually beat their assigned index. In other words, what percentage of the time would investors have been better off by just buying an index fund instead of picking one of those profiled in the magazines? A recap of the results, compiled by S&P:

For Large Cap (index is S&P 500): 37%
For Small Cap (index is S&P Small Cap 600): 32%
For Foreign Stock (index is S&P 700): 13%
For Int. Term Bonds (index is Barclays Interm Gov/Credit): 20%

In other words, somewhere between 13% and 37% of managers accomplish the mission of beating their assigned index. This data was compiled over a 5-year period. Academic studies that look at rolling 5-year periods find that the managers who fit in that 13% – 37% category changes. In other words, for a particular 5-year period, most managers who “rise to the top,” were at the bottom in some 5-year period prior to that point. So, the trick then becomes, picking the right “horse,” at the right time, and staying on it for exactly the right ride. For more information and data on how difficult this can be, see Stuart Lucas’s book on “Wealth,” or Burton Malkiel’s “Random Walk Down Wall Street.”

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Economics Forecasting is a Parlor Game

Thus spoke Chris Davis, CEO of Davis Venture Funds, at a conference I attended in May. For many people, “economics” is synonymous with the stockmarket. The assumption seems to be that if we can predict where the economy is going, then we can predict what will happen with the stockmarket. Further, if we can predict which sectors or countries are destined for short-term success or failure, then we can translate that knowledge into successful decisions about investing.

Data about the correlation between the health of the economy and the “health” of the stockmarket, however, repeatedly shows this to be a doomed strategy for investing. The market, in fact, is a leading indicator of economic upturns and downturns. This fact is so well established that the S&P 500 index is included in the top 10 leading indicators used by economic forecasters. Again quoting Mr. Davis, “This we know. 1. The market turns before the economy. 2. The sentiment turns after the market.”

In other words, economic forecasting may be a fun parlor game for investors, but it is useless as an investing decision tool. By the time we can see the economy’s direction, the market is ahead of it. Therefore, investment strategies that depend solely upon being in a sector, country, or market right before it rises, and out of it right before it falls, have an abysmal track record of success. See Princeton professor Burton Malkiel’s A Random Walk Down Wall Street or Carnation family scion Stuart Lucas’ Wealth for a synopsis of the numerous studies done on this subject.

Successful investment strategies are as numerous and unique as individual investors themselves, yet what they all have in common is: 1) time in the market; 2) high savings rate; and 3) absence of fear and greed in decisionmaking. There is no proven formula to produce an economy that can feed, house, employ, and nurture its entire population. But, fortunately, if we stick to an investing strategy crafted just for us, we can feed, house, employ, and nurture ourselves for years to come.

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Might As Well Face It We’re Addicted to Miles

“But I get miles with that card!”

This I have heard many times when I ask about consolidating plastic in someone’s wallet. I said it myself in the not-too-distant past. A few years ago, I attempted to quantify what I was actually getting, and what I was giving up, by stubbornly desiring to earn “free” trips with my frequent flier miles.

After all, who doesn’t want a freebie? Miles and points feel like freebies for spending on “stuff I was going to buy anyway” (Uh-huh. Really?) In my consultations, I frequently come across the all-too-familiar psychological pull of freebies, and a steadfast reluctance to give them up.

My conclusion from my analysis? We are better off with cards that earn cold, hard cash. And some of us are better off with no cards at all. Here are four reasons:

Reason 1) Miles are something we crave that is not in our best interest. Recently my sister, the mother of a 7-year-old, told me about the latest kids’ fad, Silly Bands. Evidently kids are so crazy about these colored rubber bands that they collect, trade, barter, and, of course fight over them. To me, frequent flier miles and “points” are adults’ version of Silly Bands. They are like foreign currencies you can only spend abroad, or Monopoly money that is only good on the game board. With frequent flyer miles, airlines run the printing press for their currency. They also run the cash register.

Conversely, cash, specifically the U.S. dollar, is boring, but is spendable almost anywhere. If I have a fee-less card that pays cash back (and I do), I get a discount on what I have already spent, rather than on something I might spend in the future.

(Of course I am assuming the card gets paid off every month. For anyone who does not do this, a discussion about miles is irrelevant. Comparing the cost of interest relative to the benefit of miles is like comparing the Empire State building to my house.)

Reason 2) Miles “Inflation.” Some say when they look at how many miles or how many points they get, compared with, say, 1% cash back, the miles and the points are worth more.

What if you can get a $500 ticket for 25,000 miles? That’s twice the cash back rate. However, my observation lately is that airlines are reducing available seats for frequent fliers, increasing fees, and increasing miles required per flight. Here is a personal example. I earn miles the old-fashioned way – by flying. In December 2009, I was looking at a January 2010 trip to Canada. Although the airline appeared to advertise my “miles” price would be 25,000, those seats did not happen to be available for the flights I wanted. But, voila, the seats magically appeared if I was willing to spend 50,000 miles. On top of the miles price, the airline charged a “booking fee” of somewhere between $20 and $50, each way. I would have paid between $40 and $100 for the sake of getting a “free” trip, and inflated away my miles value from a penny per mile to half a penny per mile. Overall, the airlines’ inflationary printing press is making sure that miles are worth less and less. (Additionally, for this reason, I use my miles as soon as possible. Tomorrow they could be worthless, and there would be no “airline FDIC” to save my miles. Is the miles program too-big-to-fail?)

Reason 3) Time Value of Money. Continuing the currency analogy, with my cash-back card, I get to use my cash right away, because my card applies it against my purchases. Miss Miles-Card has to wait until she spends $25,000 to get to use her Silly-Band-Monopoly-money miles, assuming she can get a ticket for 25,000 miles. How long does it take to spend $25,000? Is reaching the $25,000 mark something that should be rushed for the sake of accumulating miles?

Reason 4) If I meet someone with a spending or saving “problem,” (meaning anyone who has not saved enough to meet their goals but has had time and circumstances to do so), I look to the credit cards. Even if they have sufficient income or assets to pay off the cards every month, the problem with using credit cards, psychologically, is that they provide no limit or check on our spending. They encourage spending behavior, not saving behavior. Studies show that, on average, if we use credit, we spend 130% of our income.  Our society is filled with enough stimuli telling us what we “need,” or “should have,” or “have to have,” and not enough messages about how to get them responsibly. Credit card companies team up with airlines to bombard us with ads for earning miles and points. Miles and points! More miles and points! Even more miles and points! I am suspecting that miles-and-points must be wildly profitable to the ad-sponsoring enterprises, and not-so-wildly-profitable for me.

Miles addiction can be a tough habit to break. What if, instead of “banking” miles, we just “banked” 1% of our spending? Would we be as satisfied with watching that savings account balance grow as we are watching our miles account grow? I admit, like my 7–year-old niece and her Silly Bands, I get a thrill watching my collection grow. But even a .25% savings account pays better than miles.

Continue ReadingMight As Well Face It We’re Addicted to Miles

Selecting a Trustee: Talent, Temperament and Time

Professional advisor or trustee

Selecting a trustee: talent, temperament, and time. Sometimes an estate planning attorney will recommend setting up a trust. One of the decisions to make in setting up a trust is selecting a successor trustee.  Who is the best person or persons to step into this role if you are unable to? Should it be a family member or a professional trust company?

The requirements for this role often boil down to talent, temperament, and time.

Following this outline, here are some questions to ask when considering a person, or an institution, as a successor trustee:

Selecting a Trustee: Talent

First, talent. Is the potential trustee detail-oriented? For example, trustees are required to provide annual accountings to beneficiaries.

Are they familiar with keeping track of which money is considered “principal,” and which is considered “income”? This can make a difference when there are both current beneficiaries and remainder (future) beneficiaries.

How familiar is the trustee with the spectrum of investments? Does he, she, or it understand the risk factors of all kinds of investments? Would he, she, or it know which investments are in the best interest of the beneficiaries? Trustees are “fiduciaries,” which means they are liable if their investment choices are not considered to be in the beneficiaries’ best interests at all times.

That said, would the trustee understand when it is wise to watch pennies, and when it is “pound-foolish”?

Selecting a Trustee: Temperament

Next, temperament. Will naming this person cause family tension?

Will they have conflicts of interest?

Do they have problems dealing with other family members?

Can they be sensitive to family dynamics and unbiased in decision making?

Will this person put my interests ahead of his or her own?

Selecting a Trustee: Time

Finally, time. Will serving as trustee pose a time burden on a person? Trustees must have time to:

  • review and pay bills,
  • review investment decisions (jointly or with professional investment managers), and
  • communicate with beneficiaries as necessary.

How is the health of the potential trustee being considered? Will the beneficiaries likely outlive this person?

Further Questions

For shortfalls in any of these areas, an estate planning attorney should be consulted on whether any of the following may help:

  1. Naming two or three people as co-successor trustees.
  2. Considering a current co-trustee or –trustees.
  3. Considering a “trust protector,” a third-party person who oversees the trustee and can replace them if they are doing an unsatisfactory job.
  4. Having a family meeting to discuss the  provisions of the trust with the successor trustees, attorney, financial planner, and accountant.

For some, a corporate trustee has distinct advantages. Corporate trustees have entire staffs of trust officers and lawyers. They have accounting systems set up to provide accountings and pay bills. Most have salaried staff investment managers with performance-based bonuses. They purchase stocks, bonds, and funds at institutional pricing with no markup to clients.

Additionally, trust companies operate as unbiased professionals, with experience handling reasonable and unreasonable family members. They have loads of liability insurance. Finally, beneficiaries can’t outlive (most) corporate trustees. If the corporate trustee goes bankrupt, client accounts are protected and can be transferred in-kind to another corporate trustee or custodian.

Of course, corporate trustees come with a price. Normally the fee is a percentage of the assets being managed. A family member may not charge anything although by some state statutes, they can. The decision to make is whose talent, temperament, and time is worth it.

For a listing of local estate planning attorneys, look up your local Estate Planning Council at https://www.naepc.org.

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Link to “The Hidden Costs of Mutual Funds”


Thanks to a loyal reader for suggesting this article by Anna Prior of the Wall St. Journal.

My friend, colleague, and prolific writer, Ron Rhoades, J.D., published an extensive white paper on this topic.  If you’re a fine-print kind of person looking for the down-and-dirty academic analysis (55 pages worth), he’s the guy.  You can access it at:  http://www.josephcapital.com/Resources.html.  Scroll down to “White Papers” and download “Estimating the Total Costs of Stock Mutual Funds.”  Or, you can request it by emailing info@josephcapital.com.

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Read more about the article Investing Vehicles: Getting You Where You Want To Go
Are you in the right investing vehicles for your destination?

Investing Vehicles: Getting You Where You Want To Go

With the stockmarket falling, it’s normal for investors to wonder what kind of investing vehicles to choose right now. Stocks, bonds, even real estate, seem poised to crater as soon as we decide to buy. It’s probably the most common question a financial planner receives in times like this – “Where should I put my money?”

The media is filled with quick-fix advice on this all-important question. Research has shown that the best long-term predictor of investing success is the percentage we have in stocks vs. bonds. Further down the list in importance is the specific stocks and bonds (or mutual funds) selected.  But, financial products, or investing vehicles, are what sell pop-up ads and keep eyeballs glued to our screens. So, it’s no wonder that this is a common question.

The Question Before The Question

However, precisely because it is so important, it’s not a question that can normally be answered in an hour, or even two.

There is a reason that financial products are called “vehicles.”  They get you where you want to go.  Consider – if you get behind the wheel of a real vehicle, turn on the ignition, put it in drive, and step on the gas without a destination in mind, what happens? You might have some fun and adventure, but not a lot to show for the trip before you have to fill up again.

Wild Destinations

When investors are asked where they would like the vehicle to go, financial planners often hear something like the following:

  • Rich-Land (News flash: most of us are there already.)
  • Growth-With-No-Risk Land
  • 100%-Guaranteed-Income Land
  • Cake-and-Eat-It-Too Land
  • Whatever-the-Most-My-Portfolio-Can-Make-Me Land

These kinds of wild places only exist in Financial-Fantasy-Land. They are too vague for any kind of meaningful map. Having one of these as your sole destination is a recipe for exhaustion and frustration. No vehicle will get you there, no matter what you might hear or read.

Fun and Fulfilling Destinations

In comparison, what are some examples of fun and fulfilling destinations? Try these:

  • Have $X per year to support my basic living needs beginning in 20__
  • Replace my car with one like it every 5 years until I can’t drive anymore
  • Spend 3 weeks every year in Scotland beginning in 20__
  • Put my kids through private school
  • Provide sufficient support for the kids to attend a liberal arts college at age 18 if they want to
  • Buy a mountain house by 20__
  • Host my children and grandchildren on a cruise every summer beginning in 20__
  • Build my own boat by 20__
  • Hold a 50th anniversary party for my parents
  • Open a beachside bistro by 20__
  • Go to graduate school full-time in 20__
  • Spend 20 hours per week volunteering at the shelter beginning in 20__

These are real-life goals from real-life people with real achievability. Some of the destinations they knew off the top of their heads. Others took some time to dream, discuss, and discover.

In some cases, that discovery was hard work. But once we knew the destination, then we knew what kind of investing vehicles were necessary and appropriate. To carry the analogy further, it was obvious whether we needed snow tires, a sunroof, hatchback, manual transmission, tinted windows, or halogen headlights. Investing decisions all fell into place.

Destination First; Vehicle Later

In short, figuring out the investing vehicles is not the hardest question. The more challenging ones are:  Where do you want to go?  What do you need, what do you want, what do you want to hedge against, and what do you wish for?

If you need further help, download our lifestyle planning questionnaire: Beyond the Numbers; check out one of our books or sign up for an award-winning monthly e-letter, “The View From the Porch.”

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10 Questions For Aging Parents

10 questions for aging parents

10 questions for aging parents: Are you wondering if your parents have their estate and inheritance plans in order? Or how their affairs would be managed if they had to move from their home?  Or even that they might be vulnerable to the latest tele-huckster scam?  It can be a difficult topic to broach.  Here’s help posing the right questions in a sensitive way.

1.    Could you tell me where you keep your important papers at home, in case I need to find them?
2.    Have you made an inventory of your property, including furniture, jewelry, art and other collectibles?
3.    Is there anything I can do to help get your important documents in order?
4.    Have you named someone to make financial decisions for you if you are no longer able to make those decisions yourself?
5.    Do you have a living will or a health care power of attorney?
6.    How do you feel about long-term care, if you need help later on?
7.    Who are your key advisors: attorneys, financial consultants, accountants and insurance specialists?
8.    What charitable causes are important to you?  Are there any charitable pledges you have made or would like to make?
9.    Would you like to talk with me about your final wishes or funeral arrangements so I can make sure I know what to do?
10.  Is there anything else you’d like us to know?

One or two of these 10 questions may be the spark that ignites a meaningful conversation.  For more information on how to address one of these 10 specific planning topics, contact us.

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Painful Lessons from the Blackberry Patch

eating fresh picked

On the 40+ acres where we spend most of our weekends, we have wild blackberry bushes.  Last year, I planned to pick fresh blackberries at the peak of their ripeness and make cobbler, one of my favorite desserts.  In our neck of the north Florida woods, blackberries peak in June.  Throughout the spring I walked around the property, watching as the berries turned from green in March to red in April to black in May.  By the beginning of June, little black corpuscles grew into shiny clusters of ball-bearing-sized berries.

On June’s second weekend, I decided it was time to harvest.  The heat index was at a record in the high 90s.  To defend myself from thorns, sun and mosquitoes, I donned my long-sleeved cotton t-shirt, blue jeans, knee-high socks, Steel-Toe boots, gardening gloves, sunglasses, and wide-brimmed hat.  I drank a pint of water, put sunscreen on my face and neck, grabbed my colander for collection, and thought about how good that shower was going to feel in an hour.

My recipe called for two cups of blackberries.  From my previous broad surveys of the property,  two cups should have been no problem.   Tossing the two-cup requirement aside, I had instant visions of filling the colander – 4 to 6 cups – with leftovers for ice cream toppings, afternoon snacks, and oatmeal.  Judging from what I knew I had seen, I was excited about having fresh blackberries every day for the next week.

Not So Fast

I started at the scraggly patch close to the house, a 10-foot diameter group surrounding a skinny tree in the middle of the hayfield.  More red ones were there than I remembered, and the black ones weren’t as large as I thought, either.  Not wanting to waste my trip to the patch, I picked a few clusters for the sake of having something to show.   A bit frustrated, I marched 200 yards across the field to the big oak grove, intent on finding better quality there.

On the south side of the elliptical two-acre grove, the sun was intense.  The berries there were slightly better than the first patch, but some had little beetles on them that reminded me of stinkbugs.  I squinted carefully before I picked, sweat beads dripping into my eyes, to make sure no bugs were getting into my colander.  Even if it was a big juicy cluster, I left it alone if there was a bug on it.

About an hour into my venture, sweaty and thirsty, I walked to the east side of the grove.  Not only was it shadier for me, but the shade must have been good for the berries.  Instead of 12 inches tall, some of the bushes were 3 feet tall.  I didn’t have to bend over as much, but the banana spiders found the environment perfect for their webs. Like the stinkbugs, I preferred to avoid spiders rather than kill them or disturb their web.

But, whoa!  Some of the clusters were the size of my big toe (which was now a little uncomfortable in the cotton socks inside the Steel-toe boot).  Yet, how sweet!  And not many stinkbugs.   When I found a patch with no spiders or stinkbugs, it felt like the jackpot, but I had to be more careful. I went to pluck the big clusters, but they were so ripe that my gloved fingers squished them, or they tumbled into the tangled mass of thorns, ticks, or who-knew-what below the branches.  I checked my colander.  My excitement faded.  For ninety minutes of effort, I didn’t even have my minimum.

Light Bulb Moment

With my head down, I noticed how soaked my jeans were, covered with thorns, which wet jeans seemed to attract. Yikes!  I felt the familiar sting of a mosquito on my shoulder, through my shirt, which was sticking to my skin.  Ignoring the thorns would be easy, because the mosquito bites were worse.  I wondered if the tradeoff of bigger berries for mosquito bites was going to be worth it.

But I didn’t have my two cups.   I had to press on.   I hurriedly looked up for webs, down for berries, swung my free arm to clear webs and then slap mosquitoes, while trying not to spill the colander.  I looked like a sweaty, disheveled marionette being operated by a 5-year-old.

I stopped again.  “How did someone with an MBA end up with such pathetic productivity?”  I thought.  I was clearly not cut out for the ag business.  My efficiency had to improve or else, no cobbler.  This was an unacceptable result.

I took ten steps back.  From that distance, I could scan the next patch for webs and big clusters.  If no big clusters or too many webs, I moved on.  If big clusters or few webs, I gently plucked easy-to-reach, bug-free big berries. I thought of my speed reading class – keep your eyes moving down the page.  So while I was picking the current patch, I scanned the next one.  Working faster lessened the number of mosquitoes on my shirt. Although I was itching from the previous bites, the rate of new bites was declining.  (That’s what an MBA would tell herself in order to keep going.)  But, I was getting only the best berries.  In ten minutes I covered the rest of the oak grove and transitioned to the trails in the woods.  Productivity problem solved.

Within the next hour I had picked through five shady acres in the adjoining woods and filled my colander.  I wearily strode back to the porch, peeled off my boots and socks, and walked inside.  I put the colander in the sink and took my long-anticipated shower.  Afterwards, rinsing the berries, I thought,  “I could have paid $6.99 at the store.”  Worse, I took the risk of getting Lyme disease from a tick, or encephalitis from a mosquito.

Lessons Learned

I then thought about other lessons I already knew, but didn’t apply, that morning:

1)  In Florida in the summer, applying mosquito repellant underneath your clothes is not a crazy idea.
2) Sometimes there’s no substitute for experience. Although I thought I was well-prepared,  if I had consulted someone who had already learned these lessons, I would have saved three hours of heat-borne agony.
3) Among all of the “wish I had known thats,” the most disheartening was that the ripest, juiciest, biggest berries aren’t in the sun.  They don’t have to be plucked at the bottom where the thorns are. They grow in the shade.  With the right technique, they fall off the end of the branch into your hand.   (“It’s all in the wrist,” my father, a tennis player, would say.)  Knowing the right techniques makes a big difference in time and quality results.  Even berry-picking has techniques.
4) If quantity is the only goal, then pick every berry on every bush and be done.  If quality is important, then don’t burrow in the single bushes.  Step back and scan the whole patch first.

Considering the physical risks I took, this could have been a very expensive outing.  Was it worth it?

Well, for the short while that I was enjoying fresh hot cobbler with Cool Whip, in clean, air-conditioned comfort on a suffocating June day, yes, it was.

Continue ReadingPainful Lessons from the Blackberry Patch